DOL Issues Temporary Enforcement Policy During Phased Implementation Ending Jan. 1, 2018

The U.S. Department of Labor (DOL)'s Fiduciary Rule is expected to take effect June 9, 2017, subject to the DOL's temporary enforcement policy, outlined below. The Fiduciary Rule generally treats persons who provide investment advice or recommendations for a fee or other compensation as fiduciaries in a wider array of advice relationships. However, under the Fiduciary Rule's exemptions, certain employees will continue not to be treated as investment advice fiduciaries.

Who Is a "Fiduciary" Under the Rule?
The Fiduciary Rule defines who is a "fiduciary" of an employee benefit plan under the Employee Retirement Income Security Act (ERISA) as a result of giving investment advice to a plan or its participants or beneficiaries. Under the Fiduciary Rule, a person directly or indirectly renders investment advice if such person provides to a plan, plan fiduciary, plan participant or beneficiary, IRA, or IRA owner for a fee or other compensation certain categories or types of financial advice, including recommendations as to the advisability of buying, holding, selling, or exchanging securities or other investment property and/or recommendations as to the management of securities or other investment property.

Whether advice constitutes fiduciary investment advice depends on whether the advising person makes a "recommendation" regarding an investment or investment management and receives direct or indirect fees or other compensation. The Fiduciary Rule defines "recommendation" as a communication that, based on its content, context, and presentation, would reasonably be viewed as a suggestion that the advice recipient engage in or refrain from taking a particular course of action.

Who is Exempt from Fiduciary Standards?
The Fiduciary Rule excludes (among other individuals) employees working in a company's payroll, accounting, human resources, or financial departments who routinely develop reports and recommendations for the company and other named fiduciaries of the sponsors' plans from being considered investment advice fiduciaries. This exclusion covers these employees even if they are not the persons ultimately communicating directly with the plan fiduciary (e.g., employees in financial departments that prepare reports for the Chief Financial Officer who then communicates directly with a named fiduciary of the plan). Similarly, the exclusion covers communications between employees, such as human resources department staff communicating information to other employees about the plan and distribution options in the plan.

In addition, such personnel will generally continue not to be treated as investment advice fiduciaries based on communications that are part of their normal employment duties if they receive no compensation for these advice-related functions above and beyond their normal salary.

Effective Dates, Temporary Enforcement Policy, and Continuing Review
The Fiduciary Rule is expected to take effect on June 9, 2017, with certain provisions typically affecting financial advisors (e.g., "Prohibited Transaction Exemptions" and the "Best Interest Contract Exemption") further delayed to January 1, 2018. According to a recent certain provisions, during the phased implementation period from June 9, 2017 to January 1, 2018, the DOL is not expected to pursue claims against fiduciaries who are working diligently and in good faith to comply with the Fiduciary Rule and exemptions, or treat those fiduciaries as being in violation of the Fiduciary Rule and exemptions.

Additionally, the DOL is actively engaging in an analysis of the issues raised in President Trump's February 3, 2017 memorandum to the agency, which directed the DOL to prepare an updated economic and legal analysis concerning the likely impact of the Fiduciary Rule. It is possible, based on the results of the examination, that additional changes will be proposed to the Fiduciary Rule and its exemptions.

Click here to read the Fiduciary Rule in its entirety. Additional resources, including FAQs and enforcement guidance, are available here.

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